2014 WI 65
SUPREME COURT OF WISCONSIN
CASE NO.: 2012AP122
COMPLETE TITLE: Anthony Gagliano & Co., Inc.,
Plaintiff-Appellant,
v.
Openfirst, LLC and New Electronic Printing
Systems, LLC,
Defendants-Respondents,
RWK Enterprises, Inc., d/b/a Alphagraphics,
Inc., OFH
Distribution, LLC , f/k/a Openfirst Holdings and
New
Diversified Mailing Services, LLC,
Defendants,
Quad Graphics, Inc. and Robert Kraft,
Defendants-Respondents-Petitioners.
REVIEW OF A DECISION OF THE COURT OF APPEALS
346 Wis. 2d 47, 828 N.W.2d 268
(Ct. App. 2013 – Published)
PDC No: 2013 WI App 19
OPINION FILED: July 15, 2014
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: December 18, 2013
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Milwaukee
JUDGE: Dennis P. Moroney
JUSTICES:
CONCUR/DISSENT: BRADLEY, J., concurs in part, dissents in part.
(Opinion filed.)
DISSENTED: ABRAHAMSON, C.J., dissents. (Opinion filed.)
NOT PARTICIPATING:
ATTORNEYS:
For the defendant-respondent-petitioner Quad Graphics,
there were briefs by Michael B. Apfeld, Michael D. Huitink, and
Godfrey & Kahn, S.C., Milwaukee, and oral argument by Michael B.
Apfeld.
For the defendant-respondent-petitioner Robert Kraft, there
were briefs by Ann M. Maher, Lisa M. Lawless, and Whyte
Hirschboeck Dudek S.C., Milwaukee, and oral argument by Lisa M.
Lawless.
For the plaintiff-appellant, there were briefs by Thomas
Armstrong, Beth J. Kushner, and Von Briesen & Roper, S.C.,
Milwaukee, and oral argument by Thomas Armstrong.
An amicus curiae brief was filed by Thomas D. Larson,
Madison, on behalf of the Wisconsin Realtors Association.
2
2014 WI 65
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2012AP122
(L.C. No. 2008CV17601)
STATE OF WISCONSIN : IN SUPREME COURT
Anthony Gagliano & Co., Inc.,
Plaintiff-Appellant,
v.
Openfirst, LLC and New Electronic Printing
Systems, LLC,
FILED
Defendants-Respondents,
JUL 15, 2014
RWK Enterprises, Inc., d/b/a Alphagraphics,
Inc., OFH Distribution, LLC , f/k/a Openfirst Diane M. Fremgen
Holdings and New Diversified Mailing Services, Clerk of Supreme Court
LLC,
Defendants,
Quad Graphics, Inc. and Robert Kraft,
Defendants-Respondents-Petitioners.
REVIEW of a decision of the Court of Appeals. Affirmed in
part, reversed in part, and remanded.
No. 2012AP122
¶1 PATIENCE DRAKE ROGGENSACK, J. We review a decision
of the court of appeals1 reversing the circuit court's order2
dismissing plaintiff Anthony Gagliano & Co., Inc.'s (Gagliano)
claims against defendants New Electronic Printing Systems, LLC;
Openfirst, LLC; Robert Kraft; and Quad/Graphics, Inc.
Gagliano's claims concern rent allegedly owed under several
commercial leases. This case presents two issues for our
review: (1) whether Gagliano gave sufficient notice to extend
the leases to the time when the alleged breach occurred; and (2)
whether Quad/Graphics was a subtenant of the lessee or an
assignee of the leases.
¶2 As to the first issue, we conclude that Gagliano's
notice was valid. Gagliano provided notice: (1) to the entity
designated as the tenant on the original lease; (2) to the
entity who was the current tenant at the time of the notice; and
(3) to the entity a subsequent amendment of the lease designated
as the tenant. The notice is also valid because the current
tenant at the time Gagliano sent the notice had actual notice
that Gagliano was exercising its alleged right to extend the
leases. Accordingly, we affirm the portion of the decision of
the court of appeals that reversed the circuit court's directed
verdict, which had concluded that Gagliano's notice was not
valid. We remand to the circuit court for fact-finding
1
Anthony Gagliano & Co. v. Openfirst, LLC, 2013 WI App 19,
346 Wis. 2d 47, 828 N.W.2d 268.
2
The Honorable Dennis P. Moroney of Milwaukee County
presided.
2
No. 2012AP122
necessary to decide the merits of Kraft's remaining arguments
relating to the lawfulness of the extension provision in the
leases.
¶3 In regard to the second issue, we conclude that
Quad/Graphics is not liable to Gagliano because Quad/Graphics
was a subtenant of the lessee, not an assignee of the leases.
Undisputed evidence shows that New Electronic Printing Systems,
the assignee of the original tenants, did not transfer its
entire remaining leasehold estate to Quad/Graphics. Because
Gagliano and Quad/Graphics did not share privity of estate, it
is not an assignee. Therefore, we do not hold Quad/Graphics
liable for New Electronic Printing Systems' alleged breach of
contract to which Quad/Graphics was not a party. Accordingly,
we reverse the portion of the decision of the court of appeals
that reversed the order of the circuit court granting summary
judgment in favor of Quad/Graphics and remand to the circuit
court for dismissal of all claims against Quad/Graphics.3
I. BACKGROUND
¶4 In 1996, Robert Kraft formed Electronic Printing
Systems, Inc.,4 a data processing company that helped businesses
3
On a motion for summary judgment, the circuit court found
Quad/Graphics was "not an alter ego under the circumstances of
this case." While Gagliano argued for reversal of that
determination to the court of appeals, it makes no such argument
in this review. We therefore deem that argument abandoned,
requiring no further consideration. See Gister v. Am. Family
Mut. Ins. Co., 2012 WI 86, ¶37 n.19, 342 Wis. 2d 496, 818 N.W.2d
880.
4
This is a different corporate entity from New Electronic
Printing Systems, LLC, which is a party to this action.
3
No. 2012AP122
with their billing operations. Over the course of about 12
years, that company was rebranded, restructured, and sold to
various entities. It also changed locations within Milwaukee's
third ward from its original facility on Buffalo Street to
Gagliano's facility at 300 North Jefferson Street, where it
remained until it went out of business.
¶5 This case involves several leases that the company and
its progenies had with Gagliano. It requires us to determine
whether Gagliano provided valid notice to extend those leases to
the time of the alleged breach. It also requires us to
determine whether Quad/Graphics, the last entity to acquire
assets of what was Electronic Printing Systems, can be held
liable for that alleged breach. Before reaching these issues,
we review the leases and describe the various changes the
company underwent that bear on our decision.
A. The Leases
¶6 There are two North Jefferson Street leases that
underlie this action: the May 22, 2000 lease and the May 18,
2001 lease. Both leases were amended numerous times as will be
explained below.
¶7 On April 11, 2000, Gagliano and Kraft entered into a
lease for 50,000 square feet of property in the Jefferson Street
facility for a term of five years. The lease initially gave the
tenant, which the lease listed as "Electronic Printing Systems,"
the right to extend the lease for "two consecutive additional
periods of three years." The record shows that this section was
crossed out.
4
No. 2012AP122
¶8 On May 22, 2000, Gagliano and Kraft executed a revised
version of the lease, which superseded the April 11, 2000
version. Whereas the first lease covered only 50,000 square
feet of property, the May 22, 2000 lease covered 90,000 square
feet, divided into two leased premises. The portion of the
lease for the initial 50,000 square feet expired June 23, 2006.
The portion of the lease for an additional 40,000 square feet
expired six years after the tenant took occupancy.5
¶9 The May 22, 2000 lease contained several terms that
bear on our analysis. First, it provided that upon notice at
least 120 days before the expiration of the initial term,
Gagliano had the right to extend the lease for an additional
four-year term. Kraft claims that Gagliano fraudulently
inserted this extension right for the landlord in place of the
tenant's right to extend that was set out in the April 11, 2000
lease. Second, the May 22, 2000 lease provided that Gagliano
was to send notices to Electronic Printing System's Buffalo
Street address prior to commencement of the lease and to the
Jefferson Street facility thereafter. Third, Kraft personally
guaranteed the May 22, 2000 lease and was, along with Electronic
Printing Systems, to remain liable in the event of any sublease
or assignment, both of which required Gagliano's consent.
¶10 About a year after executing the May 22, 2000 lease,
Kraft decided to lease additional space in the Jefferson Street
5
The leases referred to the leased spaces as "Demised
Premises I" and "Demised Premises II," respectively. We will
refer to them as the first and second leased premises.
5
No. 2012AP122
facility for his son's printing business. On May 18, 2001,
Gagliano and Kraft, this time on behalf of Openfirst, Inc.,
executed a new lease for an additional 1,848 square feet in the
Jefferson Street facility that expired 16 months after the
completion of certain work. This was a new lease (the 2001
lease) and not an amendment of the May 22, 2000 lease. Gagliano
concedes that Kraft did not guarantee the 2001 lease. The 2001
lease did not provide for any extensions of the lease term by
Gagliano.
¶11 Gagliano and Kraft amended the 2001 lease twice to
extend its term, first to November 7, 2004 and then to June 23,
2006. The second amendment added a provision that permitted
Gagliano to extend the lease for an additional four-year term by
giving notice within 120 days of the lease's expiration.
¶12 Gagliano and Kraft also amended the May 22, 2000 lease
in a document that lacks a date of execution, but states that it
"commences" October 23, 2003. This amendment added 8,900 square
feet of space in a third leased premises and designated
"OpenFirst, Inc., successor in interest to Electronic Printing
Systems" as the appropriate recipient for further notice.
¶13 On November 6, 2002, Openfirst, Inc. and related
companies sold their assets to Openfirst Holdings, LLC; New
Diversified Mailing Services, LLC; and New Electronic Printing
Systems. As part of the asset purchase, the leases that
underlie this action were assigned to the buyers. Gagliano
consented to the assignment on the condition that the "Tenant
and any and all guarantors of [the] Lease[s] . . . remain fully
6
No. 2012AP122
liable under [the] Lease[s]." Gagliano also consented to New
Electronic Printing System's subsequent assignment of the leases
as collateral to Associated Bank, NA, again on the condition
"that none of the original obligors and/or guarantors" be
released from liability.
¶14 On December 29, 2005, Gagliano sent notice of its
intention to extend both leases for an additional four-year
term. He sent the notices to the persons, entities, and
addresses that follow:
Robert Kraft
300 N. Jefferson St.
Milwaukee, WI 53202
Electronic Printing Systems, Inc.
300 N. Jefferson St.
Milwaukee, WI 53202
Open First, Inc.
300 N. Jefferson St.
Milwaukee, WI 53202
Target Marketing Solutions, Inc.
300 N. Jefferson St.
Milwaukee, WI 53202
¶15 Kraft received Gagliano's notice and informed Gagliano
that he did not "recognize" the extension as valid. New
Electronic Printing Systems remained in the facility and
continued to pay rent into the extended period.
¶16 At the time Kraft received Gagliano's notice, he had
begun negotiations with Quad/Graphics to restructure the
businesses. As part of the restructuring agreement
"Quad/Graphics loaned money to, and received a promissory note
from the following entities so they could buy Quad/Graphics's
7
No. 2012AP122
interest in the business: Openfirst [Holdings], LLC; New
Diversified Mailing Services, LLC.; and New Electronic Printing
Systems, LLC." Anthony Gagliano & Co. v. Openfirst, LLC, 2013
WI App 19, ¶17, 346 Wis. 2d 47, 828 N.W.2d 268 (internal
quotation marks omitted). At the end of this transaction, New
Electronic Printing Systems still owned the leases. Kraft
remained a minority shareholder and officer until September
2007, when Quad/Graphics terminated his employment.
¶17 The restructuring with Quad/Graphics did not spell
success for the companies involved. About two years later, New
Electronic Printing Systems went out of business. Vice
President and General Counsel of Quad/Graphics Andrew Schiesl
explained the arrangement that followed:
[New Electronic Printing Systems] was going out of
business, [and] it owed QuadGraphics money as a
borrower because QuadGraphics was a lender to it. As
part of the ultimate resolution of that loan . . . the
remaining business[, New Electronic Printing Systems,
Inc.,] was effectively surrendered to QuadGraphics to
pay back, to try and pay back the loan. QuadGraphics
then started effectively sub-contracting or doing the
business that it had just taken over at that point,
and it needed to enter into a sublease with the
sublessor so they could continue to use that space.
¶18 On June 23, 2008, to accomplish this arrangement, New
Electronic Printing Systems and Quad/Graphics entered into two
contracts. The first was the Voluntary Surrender Agreement and
the second was the Sublease for certain space at the North
Jefferson Street facility.
¶19 In the Voluntary Surrender Agreement, New Electronic
Printing Systems agreed to surrender collateral to
8
No. 2012AP122
Quad/Graphics, and Quad/Graphics could, "in its sole discretion,
accept" the collateral or "any portion thereof." New Electronic
Printing Systems did not tender, and Quad/Graphics did not
accept, surrender of the leases. In this regard, the Voluntary
Surrender Agreement stated, "For the avoidance of doubt, the
Collateral shall not include any lease for real property."
¶20 The Voluntary Surrender Agreement permitted
Quad/Graphics to "store the Collateral at [the North Jefferson
Street facility] at no charge to Quad until all of [New
Electronic Printing Systems, LLC's] obligations to Quad are
satisfied in full or until disposition of the Collateral,
whichever occurs earliest." Quad/Graphics and New Electronic
Printing Systems set forth the terms of the storage arrangement
in the Sublease, which expired October 31, 2008, unless
terminated sooner by either party.6 Gagliano did not sign a
written agreement consenting to the sublease.
¶21 Quad/Graphics' communication with Gagliano began when,
on September 1, 2008, Schiesl wrote to Gagliano informing
Gagliano that New Electronic Printing Systems intended to vacate
6
The copy of the Sublease in the record does not bear a
signature on behalf of Quad/Graphics, but the parties do not
dispute that Quad/Graphics did sign the Sublease. On
December 6, 2013, Quad/Graphics moved to correct the appellate
record and substitute a complete copy of the document that
includes a signature page bearing the signature of Andrew
Schiesl on behalf of Quad/Graphics. Gagliano opposed this
motion. We reserved ruling on the motion until after oral
argument, and now deny it. There is no dispute that
Quad/Graphics did sign; therefore, the signed copy is not
necessary to our decision.
9
No. 2012AP122
and surrender the Jefferson Street facility on October 31, 2008.
When Gagliano did not receive rent allegedly owed after that
date, Gagliano's attorneys notified Kraft, Electronic Printing
Systems, New Electronic Printing Systems, and Openfirst, Inc.,
that they were in default of the leases. This suit followed.
B. Procedural History
¶22 On June 4, 2009, Gagliano brought breach of contract
claims against New Electronic Printing Systems, Quad/Graphics,
and Kraft.7 Gagliano claimed that its December 29, 2005 Notice
of Landlord's Extension of Leases extended the terms of the
May 22, 2000 lease for the first and third leased premises, as
well as the 2001 lease for 1,848 square feet of space in the
same building, to June 23, 2010. Gagliano also claimed that the
notice extended the lease for the second leased premises to
January 23, 2012.
¶23 Gagliano argued that New Electronic Printing Systems,
as an assignee of the primary lease, was liable for prematurely
vacating the premises, and Kraft was liable as a guarantor. As
to Quad/Graphics, Gagliano claimed that Quad/Graphics had taken
an assignment of the leases when it purchased New Electronic
Printing Systems' assets in 2006 and therefore, was liable for
the extended terms of the leases as well.
¶24 Quad/Graphics moved for summary judgment, arguing that
there was no evidence that Quad/Graphics had taken a written
7
Gagliano also brought claims against several other
entities that did not participate in this review.
10
No. 2012AP122
assignment of the leases, which the statute of frauds required,
and that the doctrines of waiver and estoppel barred Gagliano's
claims. The circuit court granted Quad/Graphics' motion,
finding that "there is absolutely no indication that Quad agreed
to any" assignment, and that it was Gagliano's obligation to
find out "who the heck they're really doing business with" and
negotiate for additional security from that party if it so
desired.
¶25 Gagliano's remaining claims proceeded to trial. At
the close of evidence, Kraft moved for a directed verdict on the
grounds that Gagliano's notice of extension was invalid because
Gagliano did not address the notice to New Electronic Printing
Systems, the tenant at the time notice was given. The circuit
court granted the motion, concluding that "there is a strict
requirement of notice," under which Gagliano needed to serve
Kraft in his capacity as a representative of New Electronic
Printing Systems. In other words, Gagliano needed to address
the notice to "New Electronic Printing Systems, c/o Robert
Kraft," rather than simply to Kraft at New Electronic Printing
Systems' address. Since the circuit court concluded that the
notice of extension was invalid, it dismissed Gagliano's claim
against Kraft and the other defendants.
¶26 Gagliano appealed, arguing that the circuit court
erred when it granted Quad/Graphics' motion for summary judgment
and when it directed a verdict on the notice of extension issue.
11
No. 2012AP122
The court of appeals reversed both orders.8 Regarding the
directed verdict, it concluded the notice of extension was valid
because "service was made on the correct entity"; "Open First,
Inc., received the benefits of the May 18, 2001, lease"; and
none "of the other documents changed that." Gagliano, 346
Wis. 2d 47, ¶31.
¶27 As to the circuit court's grant of summary judgment,
the court of appeals concluded that Quad/Graphics was liable for
rent for the remainder of the term of the extended leases
because "Gagliano's consent to the assignment of the leases [to
Associated Bank] when New Electronic Printing Systems took over
the Openfirst business was conditioned on" any subsequent third
party to whom New Electronic Printing Systems transferred its
interest assuming "the obligations under and pursuant to the
Leases." Id., ¶35. It further reasoned that Quad/Graphics was
liable because it "accepted the benefits conferred by the
Gagliano leases and their amendments" and the Sublease between
New Electronic Printing Systems and Quad/Graphics was not
8
The court of appeals stated that the appeal asked it "to
review the trial court's grant of summary judgment to
Quad/Graphics dismissing Gagliano's claims against it, and the
trial court's grant of a directed verdict dismissing Gagliano's
claims against New Electronic Printing Systems, LLC, and
Openfirst, LLC." Gagliano, 346 Wis. 2d 47, ¶27. The court did
not relate that Kraft joined the motion for a directed verdict
and participated in the appeal. The court did, however, write
that it was not going to "separately address" Gagliano's claims
against Kraft, which we take as an acknowledgment that the
portion of its decision reversing the directed verdict bound
Kraft, as well as the other defendants. Id., ¶1 n.1.
12
No. 2012AP122
binding on Gagliano because Gagliano was not a party to it.
Id., ¶36.
¶28 Quad/Graphics petitioned this court for review of the
following issue: "May a landlord recover from its tenant's
subtenant (or more remote subtenants) all future rent that the
immediate tenant had promised to pay, regardless of the terms of
the transfer from tenant to subtenant or the amount of time that
the subtenant occupies the premises?"
¶29 Kraft opposed Quad/Graphic's petition, but in the
event that review was granted, cross-petitioned this court to
review the following issues: (1) whether the court of appeals
properly determined claims involving Kraft; (2) whether the
court of appeals correctly reversed the circuit court's directed
verdict; and (3) whether the court of appeals erred in regard to
the fraud issue Kraft raised. We granted both petitions.
II. DISCUSSION
A. Standard of Review
¶30 This case requires us to review both a directed
verdict and an order granting summary judgment. When an
appellate court reviews the evidentiary basis for a circuit
court's decision to grant a directed verdict, the verdict must
stand unless the record reveals that the circuit court was
clearly wrong. Weiss v. United Fire & Cas. Co., 197 Wis. 2d
365, 389, 541 N.W.2d 753 (1995) (quoting Helmbrecht v. St. Paul
Ins. Co., 122 Wis. 2d 94, 110, 362 N.W.2d 118 (1985)) ("An
appellate court should not overturn a circuit court's decision
to dismiss for insufficient evidence unless the record reveals
13
No. 2012AP122
that the circuit court was 'clearly wrong.'"). A circuit
court's evidentiary determination is clearly wrong when there is
any credible evidence to support the position of the non-moving
party. See Marquez v. Mercedes-Benz USA, LLC, 2012 WI 57, ¶49,
341 Wis. 2d 119, 815 N.W.2d 314.
¶31 Our review of the circuit court's directed verdict
does not turn on the sufficiency of the evidence. Rather, it
involves the application of undisputed facts to principles of
law. Specifically, we focus on whether a landlord's contractual
notice to a tenant is sufficient when an appropriate person
receives that notice at the appropriate address, but the notice
does not indicate in what capacity the recipient of the notice
is being addressed.
¶32 Although review of a directed verdict ordinarily
focuses on the sufficiency of the evidence, we see no reason
that a directed verdict based on a legal error, rather than an
evidentiary problem, should escape review. We base this
conclusion on our previous observation that summary judgment,
similar to our determination in the present case, "is a legal
conclusion by the court," and can rest on the "same [legal]
theory" as a directed verdict. Steven V. v. Kelley H., 2004 WI
47, ¶35, 271 Wis. 2d 1, 678 N.W.2d 856; Lambrecht v. Estate of
Kaczmarczyk, 2001 WI 25, ¶40 n.23, 241 Wis. 2d 804, 623 N.W.2d
751 (citing 10A Charles A. Wright et al., Federal Practice and
Procedure: Civil § 2713.1, at 242-43 (1998); Daniel P. Collins,
Note, Summary Judgment and Circumstantial Evidence, 40 Stan. L.
Rev. 491, 491 (1988)). Both are appropriate when the moving
14
No. 2012AP122
party is entitled to judgment as a matter of law because there
is no genuine issue, in the case of summary judgment, or
credible evidence, in the case of a directed verdict, to support
the position of the nonmoving party. Wis. Stat. § 802.08(2)
(2011-12);9 Wis. Stat. § 805.14(1). Furthermore, we have
previously construed decisions of a circuit court to conform
with the analysis required to correct an error. Bubb v. Brusky,
2009 WI 91, ¶30, 321 Wis. 2d 1, 768 N.W.2d 903 (construing a
circuit court's dismissal of a claim as if a motion for directed
verdict had been made). As such, we review the legal basis for
the circuit court's directed verdict independently. Tufail v.
Midwest Hospitality, LLC, 2013 WI 62, ¶22, 348 Wis. 2d 631, 833
N.W.2d 586 (the interpretation of a lease, a written contract,
presents a question of law for our independent review).
¶33 This case also requires us to review the circuit
court's grant of summary judgment in favor of Quad/Graphics.
"We review a grant of summary judgment independently, applying
the same methodology as the circuit court" and the court of
appeals, but benefitting from their prior discussions. City of
Janesville v. CC Midwest, Inc., 2007 WI 93, ¶13, 302 Wis. 2d
599, 734 N.W.2d 428. In order to determine whether summary
judgment was appropriate in this case, we must review various
leases among the parties, which again presents a question of law
for our independent review. Tufail, 348 Wis. 2d 631, ¶22.
9
All subsequent references to the Wisconsin Statutes are to
the 2011-12 version unless otherwise indicated.
15
No. 2012AP122
B. Directed Verdict
¶34 We begin with Gagliano's notice of extension because
if the notice was not valid, we need not reach the issue of
whether Quad/Graphics was an assignee.
¶35 The body of law concerning the notice required to
extend a lease deals almost exclusively with a tenant's right to
extend. E.g., 2 Milton R. Friedman and Patrick A. Randolph,
Jr., Friedman on Leases § 14:2, at 14-45 to -46 (5th ed. 2005)
("A tenant's right of renewal is generally, though not
necessarily, conditioned on giving the landlord prior notice of
the election to renew."); Robert S. Schoshinski, American Law of
Landlord and Tenant § 9:4, 604 (1980) ("The mode of exercise of
an option to renew or extend" usually requires "that notice be
served on the lessor a specified time before expiration of the
original term.").
¶36 In that circumstance, most states require a "tenant
. . . [to] strictly comply with the notice provisions of an
option contract."10 52 C.J.S. Landlord & Tenant § 94 (2014).
This means that major departures from a prescribed method of
notice can render a notice ineffective. For example, a notice
may be invalid if it is late. Dyer v. Ryder Student Transp.
Servs., Inc., 765 A.2d 858, 860 (R.I. 2001). The same holds
true when a tenant utilizes a method of delivery different than
10
See also 63 Am. Jur. Proof of Facts 3d 423 (2013) ("a
provision in a lease requiring notice to a lessor of the
lessee's election to exercise an option to renew or extend the
lease must be strictly complied with").
16
No. 2012AP122
the lease specified and the notice does not reach the landlord.
W. Tire, Inc. v. Skrede, 307 N.W.2d 558, 562 (N.D. 1981).
Still, "[s]mall variances [from the prescribed method of giving
notice] will not make notice of renewal ineffective."
2 Friedman, supra § 14:2, at 14-47 (citing Beckenheimer's Inc.
v. Alameda Assocs. Ltd. P'ship, 611 A.2d 105, 112-13 (Md. 1992)
(failure to attach a notice of net worth that the lease required
did not render notice invalid)).
¶37 Although we are required to determine in this case
whether the contractual notice provisions have been satisfied,
we note that in Wisconsin, the legislature has set forth the
methods by which a tenant may provide notice of extension. Wis.
Stat. § 704.21(2). These include giving notice to the landlord
personally, giving notice to a competent person in charge of a
landlord's place of business, and mailing the landlord notice by
registered or certified mail. Id. If the landlord is a
corporation, a tenant may provide notice to a corporate officer
by these methods. § 704.21(3). Even if a tenant does not use
one of the enumerated methods to provide notice, the notice is
valid if the landlord has actual notice. § 704.21(5).11
¶38 As previously mentioned, the present case does not
involve a tenant's notice to extend a lease. However, we
consider that body of law relating to the sufficiency of a
11
Actual notice by a landlord to a tenant is likewise
statutorily sufficient in some circumstances, including notice
to terminate a tenancy, notice to inspect a tenant's premises,
and notice of an automatic renewal clause in a residential
lease. Wis. Stat. § 704.21(5).
17
No. 2012AP122
tenant's notice to extend in order to avoid imposing disparate
standards on landlord and tenant, particularly in a commercial
context.
¶39 Two possible documents potentially govern the issue of
notice in the present case: the original May 22, 2000 lease and
the subsequent amendment commencing October 23, 2003. The
May 22, 2000 lease directed that Gagliano send notices to the
tenant, Electronic Printing Systems, at the Jefferson Street
address. The October 23, 2003 amendment provided that notices
be sent to:
OpenFirst, Inc., successor in interest to Electronic
Printing Systems, Inc.
c/o Robert Kraft
300 N. Jefferson St.
Milwaukee, WI 53203
While the parties dispute which contractual notice provision
governs, we need not resolve that issue because we conclude the
notice was valid under both.
¶40 We begin with the May 22, 2000 lease, which Kraft
claims controls. According to Kraft, Gagliano's notice was
invalid because that lease said that notices should go to the
"tenant," which on December 29, 2005 was New Electronic Printing
Systems. Gagliano's notice did not name that entity, and
instead went to Electronic Printing Systems, Robert Kraft, and
others at the Jefferson Street address.
¶41 Gagliano's notice was valid under the May 22, 2000
lease for at least two reasons. First, the parties never
amended the lease to designate New Electronic Printing Systems
18
No. 2012AP122
as the tenant. Removing the October 23, 2003 amendment from
consideration, the lease required Gagliano to send notices to
Electronic Printing Systems at the Jefferson Street address.
Gagliano did exactly that. Second, even if Kraft were correct
that Gagliano was required to send the notice to New Electronic
Printing Systems, Gagliano did that as well. Gagliano sent the
notice to Kraft, an officer of New Electronic Printing Systems,
at New Electronic Printing Systems' address. That Gagliano
addressed the notice to an officer of New Electronic Printing
Systems simply ensured that an appropriate individual within the
entity received the notice.
¶42 Next, we consider the notice provision in the
October 23, 2003 amendment. Gagliano claims that this document,
not the May 22, 2000 lease, sets forth the controlling method of
giving notice because the parties executed it after New
Electronic Printing Systems acquired the leases. Under the
amendment, Gagliano was to send notices to "OpenFirst, Inc.,
successor in interest to Electronic Printing Systems." Gagliano
sent the notice to Openfirst, but did not designate that
entity's status as "successor in interest to Electronic Printing
Systems." Because Gagliano sent the correct entity the notice
at the correct address, we cannot conclude that such an omission
renders the notice invalid.
¶43 Finally, even if Gagliano's notice were defective
under either document, undisputed evidence shows that New
Electronic Printing Systems had actual notice that Gagliano was
exercising a right of extension. Kraft admitted that he could
19
No. 2012AP122
accept notices on behalf of New Electronic Printing Systems and
that he did, in fact, receive Gagliano's notice. Although Kraft
vigorously disputes whether Gagliano lawfully inserted a
landlord's right of extension in the lease, he cannot reasonably
contend that New Electronic Printing Systems was unaware that
Gagliano was exercising what Gagliano asserted was its right to
extend.
¶44 Having concluded the notice was valid, we affirm the
portion of the decision of the court of appeals, albeit on
different grounds.12 We remand to the circuit court for
12
The court of appeals concluded that the notice of
extension was valid for the following two reasons:
(1) service was made on the correct entity ('Open
First, Inc.'), and we see no reason not to apply the
general principle that we disregard errors that 'do
not affect substantial rights,' see Wis. Stat. Rule
805.18(1) (parenthetical text omitted); and (2) Open
First, Inc., received the benefits of the May 18,
2001, lease and under the law we have already
recognized was therefore bound by the . . . extension
clause adopted by the May 18 lease.
Gagliano, 346 Wis. 2d 47, ¶31.
We disagree that there is "no reason not to apply" Wis.
Stat. § 805.18(1). That statute applies to "any error or defect
in the pleadings or proceedings," whereas the notice at issue in
this case is purely contractual.
20
No. 2012AP122
determination of Kraft's remaining arguments, including whether
Gagliano fraudulently inserted the extension provision into the
May 22, 2000 lease and whether that provision materially altered
his obligations under the guarantee.13 Because Quad/Graphics'
liability can be determined independently of the notice issue,
however, we turn to the issue of whether Quad/Graphics was an
assignee of New Electronic Printing Systems.
C. Summary Judgment
¶45 Quad/Graphics argues that the court of appeals erred
in reversing the circuit court's grant of summary judgment
because Quad/Graphics was a subtenant, not an assignee, of New
Electronic Printing Systems and, therefore, was not liable to
As to the court of appeals' second rationale, we explain in
the next section that we cannot allow the general principle that
"[a] party that accepts a contract's benefits is bound to its
burdens" to eviscerate the longstanding distinction between an
assignment and a sublease. Id., ¶28. For the moment, however,
we note that Gagliano concedes that it "did not appeal the trial
court's ruling that Kraft did not guaranty the May 18, 2001
Lease . . . but . . . appeal[s] [only] the trial court's ruling
that Kraft was not liable under his guaranty for the May 22,
2000 Lease, and its October 23, 2003 Amendment."
13
Because Kraft prevailed on the notice issue at the
circuit court level and did not receive a dispositive adverse
determination from the circuit court on the fraud or guarantee
issues, Kraft had no reason to cross appeal the circuit court's
order directing a verdict in his favor. As such, we cannot say
that he has abandoned these claims on appeal. Additionally,
when Gagliano appealed the order of the circuit court, the court
of appeals should not have decided the factual issue of fraud
and the related factual issue of the guarantee. Gottsacker v.
Monnier, 2005 WI 69, ¶35, 281 Wis. 2d 361, 697 N.W.2d 436 (the
court of appeals cannot make factual determinations where the
evidence is in dispute).
21
No. 2012AP122
Gagliano for any unpaid rent. According to Quad/Graphics, the
court of appeals ignored long-standing precedent that recognizes
that a landlord may "recover unpaid rent from both its tenant
and that tenant's 'assignee,' [but] may not do so from its
tenant's mere 'subtenant.'"
¶46 Gagliano concedes that "a legitimate sublessee is
[not] liable to the landlord for unpaid rent." Its argument is
that Quad/Graphics was not a "legitimate sublessee" because it
was an assignee, rather than a subtenant, since the primary
lease prohibited subleasing without Gagliano's consent.
Gagliano also argues that Quad/Graphics was actually an assignee
because the substance of the transaction between New Electronic
Printing Systems and Quad/Graphics transferred the entire
remainder of the former's leasehold estate. We conclude that
Quad/Graphics was not an assignee of New Electronic Printing
Systems and, therefore, is not liable to Gagliano for any unpaid
rent.
1. Assignment/Sublease general principles
¶47 As early as 1864, we recognized a principle dating
back to feudal law that a tenant who transfers the entire
remainder of his estate, thereby retaining no reversionary
interest, creates an assignment of the lease, while a tenant who
transfers something less, creates a new contractual
relationship. Cross v. Upson, 17 Wis. 638 (*618), 643 (*623)
(1864) (distinguishing between an assignment and "an under-
tenancy, which is the relation ordinarily established between
the lessee and the party in possession by proof that there was
22
No. 2012AP122
no assignment"); 1 Milton R. Friedman and Patrick A. Randolph,
Jr., Friedman on Leases § 7:4.3, at 7-85 (5th ed. Rel. #24,
2014) ("[t]he ancient technical system of feudal law based the
landlord-tenant relation on the existence of a reversion"). We
affirmed this distinction more recently in Cranston v. Bluhm, 33
Wis. 2d 192, 201, 147 N.W.2d 337 (1967), in which we explained:
[T]he basic distinction between an assignment and a
sublease is that by the former the lessee conveys his
whole interest in the unexpired term leaving no
reversion in himself, while the latter transfers a
part only of the leased premises for a period less
than the original term.
(quoting 3A George W. Thompson, Commentaries on the Modern Law
of Real Property, § 1210, at 48-49 (1981)). Put another way,
"an assignment is the transfer of the existing lease, whereas a
sublease is the creation of a new tenancy between the original
tenant and the subtenant." 5 Thompson on Real Property, Second
Thomas Edition §42.04(d), at 324 (David A. Thomas & N. Gregory
Smith eds., 2007).
¶48 This distinction is grounded in principles of privity
of estate and privity of contract, both of which can be conveyed
by a lease. Schoshinski, supra §§ 1:1, at 8:1. Privity of
estate means "[a] mutual or successive relationship to the same
right in property." Black's Law Dictionary 1320 (9th ed. 2009);
see Schoshinski, supra § 8:1, at 532. To say that transferring
privity of estate transfers the same rights in property is
another way of saying that the transferee stands in the shoes of
the transferor.
23
No. 2012AP122
¶49 Privity of contract is a different creature. It
refers to the contractual relationship between parties, who are,
of course, free to negotiate for any term within the confines of
the law. Schoshinski, supra § 8:1, at 532; see generally Queen
Ins. Co. of Am. v. Kaiser, 27 Wis. 2d 571, 574, 135 N.W.2d 247
(1965) (quoting Anno. 175 A.L.R. 8, 86) ("the landlord and
tenant relationship is not a matter of public interest, but
relates exclusively to the private affairs of the parties
concerned and that the two parties stand upon equal terms").
¶50 The distinction between assignment and sublease, or
privity of estate and privity of contract, is paramount in this
case. This is so because by accepting an "assignment——
regardless of landlord's consent thereto——[an] assignee acquires
an interest in the premises that brings him into privity of
estate with the owner and makes him liable to the owner for the
payment of rent and on those tenant covenants that run with the
land." 1 Friedman, supra § 7:5.1, at 7-105; 52 C.J.S. Landlord
& Tenant § 52 (2014) (an assignee "assumes [some of] the
burdens, as well as the benefits, flowing from the original
contract" for the entire term of the assignor's lease with the
original landlord); Thomas, supra § 42.04(d), at 324 ("An
assignment will . . . bind the assignee to all covenants that
24
No. 2012AP122
run with the land . . ., including rent, . . . [while] a
subtenant is bound only to the sublease itself.")14
¶51 In contrast, when an occupant is a subtenant, the
subtenant is liable only to the tenant for the rent agreed upon
between those parties. 1 Friedman, supra § 7:7.1, at 7-123 to
-24. There is neither privity of estate nor privity of contract
between landlord and subtenant. Id.
¶52 The decision of the court of appeals did not address
this distinction. Quoting language from the November 4, 2002
Landlord's Consent Agreement in which Gagliano consented to the
New Electronic Printing Systems' assignment of the leases as
collateral to Associated Bank, the court of appeals concluded
that Quad/Graphics was liable for rent owed under the extended
leases because Gagliano conditioned its consent to the
assignment upon any subsequent transferee assuming liability for
the obligations under the leases. We cannot accept this
reasoning.
¶53 Quad/Graphics was not party to the November 4, 2002
Landlord's Consent Agreement wherein Gagliano consented to New
14
Gagliano claims that at least some of an assignee's
obligations are now defined by statute. In Lincoln Fireproof
Warehouse Co. v. Greusel, 199 Wis. 428, 437-38, 227 N.W. 6
(1929), we concluded that an assignee had no liability for the
remaining term of a lease when the assignee abandoned the
premises and the landlord accepted surrender and repossessed the
property, thereby terminating privity of estate. Gagliano
argues that the adoption of Wis. Stat. § 704.29(1) abrogates the
ability of an assignee to avoid liability in this manner by
providing that a landlord's claim for unpaid rent applies to
assignees. Because we conclude that Quad/Graphics was a
subtenant, not an assignee, we do not evaluate this argument.
25
No. 2012AP122
Electronic Printing Systems' assignment of the leases as
collateral to Associated Bank. Quad/Graphics also was not party
to the November 6, 2002 Asset Purchase Agreement for which
Gagliano consented to the principal tenants' assignment of the
leases to New Electronic Printing Systems. Because
Quad/Graphics was not a party to the Landlord's Consent
Agreement on which the court of appeals relies, the obligations
attendant to that contract do not apply to Quad/Graphics.
¶54 The court of appeals also reasoned that "Quad/Graphics
accepted the benefits conferred by the Gagliano leases and their
amendments, which were . . . disclosed to it in the July 6,
2006, Membership Interest Purchase Agreement. Therefore,
Quad/Graphics cannot disclaim or avoid its liabilities for the
burdens imposed by those leases and amendments——including the
lease-extension terms." Gagliano, 346 Wis. 2d 47, ¶36. The
problem with this conclusion, as Quad/Graphics points out in its
brief, is that every occupant can be said to have "accepted the
benefits" of the underlying lease in the broad sense used by the
court of appeals. By this logic, all occupants would be
26
No. 2012AP122
assignees, and the distinction between assignment and sublease
would be swallowed whole.15
¶55 Having explained the distinctions between assignee and
subtenant and relative obligations of each regarding payment of
rent, we turn to the remaining issue in this review: whether
Quad/Graphics was an assignee of the Gagliano leases.
2. Quad/Graphics' Status
¶56 In determining whether an occupant of a premises is an
assignee or a subtenant of the original tenant, we begin with a
presumption that an occupant, other than the original tenant who
pays rent directly to the landlord, is an assignee of the
original tenant, not a subtenant. Cross, 17 Wis. at 643 (*623)
("the law infers an assignment from the fact of entry and
occupation[; a] like presumption arises from payment of rent");
Mariner v. Crocker, 18 Wis. 264 (*251), 267 (*254) (1864)
(citing Cross for "the presumption that a party found in
possession of demised premises was there as assignee of the
lessee"); 1 Friedman, supra § 7:5.1, at 7-107 ("When a party
15
Additionally, we note that the cases the court of appeals
cites for this proposition dealt with parties to an earlier
contract. Meyers v. Wells, 252 Wis. 352, 357, 31 N.W.2d 512
(1948) (employing a presumption that an employee who worked for
several years after his employment contract expired continued to
work under the terms and conditions of the contract); S & O
Liquidating P'ship v. Comm'r, 291 F.3d 454, 459 (7th Cir. 2002)
(quoting Skelton v. GM Corp., 860 F.2d 250, 260 (7th Cir. 1988))
(former partners in an accounting firm who signed a closing
agreement could not participate in a global settlement because
"[a] party who has accepted the benefits of a contract cannot
'have it both ways' by subsequently attempting to avoid its
burdens").
27
No. 2012AP122
other than the tenant is shown to be in possession of the
premises, and paying rent therefor, there is a presumption that
the lease has been assigned to him."). What is required in
order to rebut this presumption is less clear.
¶57 The majority of cases "have treated a transfer of the
entire term [of the lease]" as dispositive of an assignment.
Thomas, supra § 42.04(d), at 326. Our statement in Cross that a
party can rebut a presumption of assignment by showing that an
occupant "charged as assignee never in fact had an assignment of
the lease" seems to state the majority rule. Cross, 17 Wis. at
643 (*623).
¶58 In a later case citing Cross, however, we stated that
"[a]ny language which shows the intention of the parties to
transfer the property from one to the other is sufficient."
Cranston, 33 Wis. 2d at 201 (quoting 3A Thompson, supra § 1210,
at 51) (emphasis added). This focus on intent, rather than
transfer in fact, seems to fall in line with an alternative line
of cases that ask "whether the parties intended to assign the
primary lease to the transferee, or intended to create a
separate tenancy." Thomas, supra § 42.04(d), at 326 (collecting
cases); see also Schoshinski, supra § 8:11, at 558 ("the most
sensible way to distinguish between an assignment and a sublease
is that adopted by the Arkansas court in Jaber v. Miller16 'that
the intention of the parties is to govern.'")
16
Jaber v. Miller, 239 S.W.2d 760, 764 (Ark. 1951).
28
No. 2012AP122
¶59 It is unnecessary to delve further into this
distinction at this time for two reasons. First, it may well be
that "the intent approach adds little to the traditional
analysis[] since courts will typically discern intent by looking
to see whether a reversion or right of entry has been retained."
Thomas, supra § 42.04(d), at 327. More importantly, the present
case does not require us to decide between the approaches, even
if they are distinct, because we conclude that Quad/Graphics and
New Electronic Printing Systems intended to enter into a
sublease and New Electronic Printing Systems did transfer less
than its entire remaining leasehold estate.
¶60 Both approaches to the assignment/sublease distinction
focus on the transaction between tenant and the subsequent
occupant. As such, we begin with the two agreements those
parties, New Electronic Printing Systems, who was the tenant at
the relevant time, and Quad/Graphics, created on June 23, 2008:
the Voluntary Surrender Agreement and the Sublease.
¶61 Quad/Graphics argues that the Sublease is the proper
focus of our analysis. Quad/Graphics explains that the
Voluntary Surrender Agreement expressly excludes the leases from
surrender and that the parties entered into the Sublease in
order to convey the portion of the leasehold estate necessary to
affect the surrender of other collateral. The term of the
Sublease was four months, ending October 31, 2008 or sooner upon
20 days notice by New Electronic Printing Systems. It did not
29
No. 2012AP122
include the remainder of the extended leases, which continued to
June 23, 2010 and January 23, 2012, respectively.17
¶62 We agree with Quad/Graphics that the Sublease is
sufficient to show that New Electronic Printing Systems did not
intend to and did not convey its entire leasehold estate because
only four months of the remaining lease term were conveyed.
Also, the lease unequivocally shows that the parties intended to
enter into a sublease. The parties labeled the document a
sublease, provided that Quad/Graphics would have "no liability
under any lease of the Premises from the fee owner thereof" and
"no obligations to [Gagliano] arising out of or relat[ing] to
this Sublease," and that Quad/Graphics was "not assuming the
Primary Lease." See Tufail, 348 Wis. 2d 631, ¶25 (quoting Kernz
v. J.L. French Corp., 2003 WI App 140, ¶9, 266 Wis. 2d 124, 667
N.W.2d 751 (in attempting to give effect to contracting parties'
intentions, "unambiguous contract language controls").
¶63 Gagliano argues that the Sublease was invalid because
the primary lease prohibited subleasing without Gagliano's
consent, which New Electronic Printing Systems never obtained.
Gagliano asks us to classify the document as an assignment;
however, the primary lease likewise prohibited assignments
without Gagliano's consent. Perhaps in anticipation of the
logical problem this argument presents, Gagliano casts his
17
This statement should not be interpreted as our view that
Kraft's allegation that Gagliano improperly inserted a right to
extend into the leases has no merit. As explained previously,
we take no position on this issue, and remand it to the circuit
court.
30
No. 2012AP122
argument in terms of fairness to the landlord. Specifically, he
contends that the invalid Sublease may not be used "for any
purpose" and may not "limit the landlord's rights." We find no
support in the law for adding a consideration of fairness to the
landlord to the test for determining whether a subsequent
occupant becomes a sublessee or an assignee.
¶64 As with the leases in the present case, the lease in
Cross required the landlord's consent to sublet or assign, which
the tenant did not obtain, yet we concluded that the tenant
could rebut the presumption of assignment by the actions of the
parties. Cross, 17 Wis. at 640, 643 (*620-21, 623). This is so
because an occupant charged with an assignment need not prove
the validity of a sublease, but rather must rebut the
presumption of an assignment. See id. at 643 (*623) (an
occupant that enters with the lessee's consent, but without
assignment, "must be an under-tenancy of some kind, for years,
from year to year, at will or by sufferance"); see generally
Lamonts Apparel, Inc. v. SI–Lloyd Assocs., 967 P.2d 905, 908
(Or. Ct. App. 1998) (concluding that a contract that did not
meet the requirements for a valid assignment or sublease did not
trigger the obligations of either, thus illustrating the basic
principle that assignment and sublease are not the only two
types of leasehold estates). As such, we conclude that although
a sublease entered into without the landlord's consent may be
voidable at the election of the landlord and give rise to a
breach of contract claim, it can be used for the purpose of
rebutting a presumption of assignment.
31
No. 2012AP122
¶65 Although fairness to the landlord does not appear to
be a proper consideration when determining whether a transfer is
a sublease or assignment, we nonetheless note that our
conclusion does not "limit the landlord's rights," as Gagliano
contends, because the landlord does not have the right to treat
any sublease in violation of the primary lease as an assignment.
The landlord's rights in such a situation are limited to
eviction of the subtenant and breach of contract action against
the primary tenant. John F. Thompson, 2 Wisconsin Property Law
Series: Drafting Commercial Leases 21 (1968) ("If [a] lease
contains a provision prohibiting the assignment or subletting
without the consent of the landlord, and a tenant does in
violation of this provision sublet or assign without the consent
of the landlord, such action on the part of the tenant
constitutes a breach of the lease, justifying termination of the
lease or any other remedy available to the landlord."). To
conclude otherwise would be to hold a nonparty to the primary
lease liable for the primary tenant's breach.
¶66 Gagliano's second argument is that although the
Sublease may have purported to transfer only a portion of the
remaining leasehold estate, the substance of the transaction as
a whole transferred the entire remainder. Specifically,
Gagliano contends that because the Voluntary Surrender Agreement
"gave Quad/Graphics the exclusive right to occupy the leased
premises for the remaining lease term" and "did not provide New
[Electronic Printing Systems] with any reversionary interest in
the premises" the transaction constituted an assignment of the
32
No. 2012AP122
leases. Quad/Graphics' right to occupy was exclusive, according
to Gagliano, because Quad/Graphics had complete control over the
conditions by which New Electronic Printing Systems could end
Quad/Graphic's right to store its collateral: satisfaction of
New Electronic Printing Systems obligations to Quad/Graphics in
full or disposition of the collateral. In sum, Gagliano argues
that the "character of the agreement" was an assignment, not a
sublease. Again, we disagree.
¶67 The Voluntary Surrender Agreement did not transfer the
May 22, 2000 lease from New Electronic Printing Systems to
Quad/Graphics because the tenant under the lease and the
subsequent occupant had different rights. For example, under
the Voluntary Surrender Agreement, Quad/Graphics could end its
obligation to pay rent by disposing of the collateral. New
Electronic Printing Systems had no such ability under the leases
with Gagliano. The Voluntary Surrender Agreement also provided
that New Electronic Printing Systems could terminate
Quad/Graphics' right to store collateral by satisfying its
obligations in full to Quad/Graphics. Again, New Electronic
Printing Systems had no such right under the leases with
Gagliano. Because the terms of the May 22, 2000 lease and
Voluntary Surrender Agreement so differ, we cannot say that New
Electronic Printing Systems assigned the lease to Quad/Graphics.
See Lamonts Apparel, 967 P.2d at 908 (concluding that there is
no assignment when a purported sublease differs from the primary
lease in significant respects). That Quad/Graphics, not New
Electronic Printing Systems, was the party who could satisfy the
33
No. 2012AP122
conditions necessary to end Quad/Graphics' obligations to New
Electronic Printing Systems under the Sublease is not germane.
The question is whether New Electronic Printing Systems
transferred or intended to assign the Gagliano leases to
Quad/Graphics. That Quad/Graphics could end its obligation to
pay rent before the May 22, 2000 lease expired on June 23, 2010
is support for our conclusion that New Electronic Printing
Systems did not make an assignment.
¶68 Furthermore, Gagliano's focus on the Voluntary
Surrender Agreement is misplaced because that agreement
specifically excluded the leases that underlie this action from
what was being surrendered when it stated, "[f]or the avoidance
of doubt, the Collateral shall not include any lease for real
property of which any Debtor is a party." We conclude that the
Sublease and Voluntary Surrender Agreement, when taken together,
show that New Electronic Printing Systems and Quad/Graphics
intended a sublease. Whether the Sublease was not "legitimate,"
i.e., entered into without Gagliano's consent, is of little
concern because it did not transfer the entire remainder of New
Electronic Printing Systems' leasehold estate to Quad/Graphics.
¶69 Having concluded that Quad/Graphics was not an
assignee of New Electronic Printing Systems' lease, we also
conclude that Gagliano cannot recover rent allegedly owed under
the extended leases based on privity of estate. Accordingly, we
reverse the portion of the decision of the court of appeals that
reversed an order of the circuit court granting Quad/Graphics'
motion for summary judgment.
34
No. 2012AP122
III. CONCLUSION
¶70 This case presents two issues for our review: (1)
whether Gagliano gave sufficient notice to extend the leases to
the time when the alleged breach occurred; and (2) whether
Quad/Graphics was a subtenant of the lessee or an assignee of
the leases. As to the first issue, we conclude that Gagliano's
notice was valid. Gagliano provided notice: (1) to the entity
designated as the tenant on the original lease; (2) to the
entity who was the current tenant at the time of the notice; and
(3) to the entity a subsequent amendment of the lease designated
as the tenant. The notice is also valid because the current
tenant at the time Gagliano sent the notice had actual notice
that Gagliano was exercising its alleged right to extend the
leases. Accordingly, we affirm the portion of the decision of
the court of appeals that reversed the circuit court's directed
verdict, which had concluded that Gagliano's notice was not
valid. We remand to the circuit court for fact-finding
necessary to decide the merits of Kraft's remaining arguments
relating to the lawfulness of the extension provision in the
leases.
¶71 In regard to the second issue, we conclude that
Quad/Graphics is not liable to Gagliano because Quad/Graphics
was a subtenant of the lessee, not an assignee of the leases.
Undisputed evidence shows that New Electronic Printing Systems,
the assignee of the original tenants, did not transfer its
entire remaining leasehold estate to Quad/Graphics. Because
Gagliano and Quad/Graphics did not share privity of estate, it
35
No. 2012AP122
is not an assignee. Therefore, we do not hold Quad/Graphics
liable for New Electronic Printing Systems' alleged breach of
contract to which Quad/Graphics was not a party. Accordingly,
we reverse the portion of the decision of the court of appeals
that reversed the order of the circuit court granting summary
judgment in favor of Quad/Graphics and remand to the circuit
court for dismissal of all claims against Quad/Graphics.
By the Court.—The decision of the court of appeals is
affirmed in part, reversed in part and the cause remanded to the
circuit court.
36
No. 2012AP122.awb
¶72 ANN WALSH BRADLEY, J. (concurring in part,
dissenting in part). This case addresses two issues: (1)
whether Quad/Graphics was a subtenant or assignee and (2)
whether the notice of lease extension that Gagliano provided was
legally sufficient.
¶73 I agree with the majority when it concludes that Quad
Graphics is a subtenant. Because the tenant did not transfer
all rights in the lease to Quad Graphics and it was not in
privity of estate with the landlord, Quad Graphics was not an
assignee. Therefore, I join Part C of the majority opinion.
¶74 However, I part ways with the majority on the issue of
the sufficiency of the notice. For the reasons set forth in the
dissent, I agree that the majority opinion is not convincing as
a matter of statutory interpretation or corporate and agency
law. Therefore, I join Part I of the dissent.
¶75 Accordingly, I respectfully concur in part and dissent
in part.
1
No. 2012AP122.ssa
¶76 SHIRLEY S. ABRAHAMSON, C.J. (dissenting). The
instant case seems to present a complex fact and legal
situation, although the court of appeals discounted the
complexity, writing that "this appeal has a veneer of
complexity."1
¶77 I write only on the issue of the sufficiency of the
landlord's notice to the tenant of the extension of the lease.
This case presents a narrow issue: What does a landlord have to
do to give notice to a tenant corporation of an extension of the
commercial lease, when the lease and the statutes are silent on
the issue of notice? Notice is a dispositive issue in the
instant case, majority op., ¶34, and I need not address other
issues addressed by the majority opinion.
¶78 The majority opinion phrases the question to be
answered as "whether a landlord's contractual notice to a tenant
is sufficient when an appropriate person receives that notice at
the appropriate address, but the notice does not indicate in
what capacity the recipient of the notice is being addressed."
Majority op., ¶31.
¶79 The majority opinion loses sight of the fact that an
individual in his or her personal capacity, an individual in his
or her representative capacity, and a corporation are separate
and apart under the law. Robert Kraft individually; Robert
Kraft as president of the corporation, New Electronic Printing
Systems; and the current corporate tenant itself, New Electronic
1
Anthony Gagliano & Co., Inc. v. Openfirst, LLC, 2013 WI
App 19, ¶26, 346 Wis. 2d 47, 828 N.W.2d 268.
1
No. 2012AP122.ssa
Printing Systems are, under the law, three different, separate
persons.
¶80 These distinct persons complicate the issue of
sufficiency of notice, which arises in numerous situations——some
regulated by statute, others by contract or the like. When the
person to be notified is a corporation, the identity of the
appropriate individual to receive notice depends on the facts
and circumstances of each situation. Notice to a corporation is
governed by the general principle that a "corporation enjoys a
legal identity separate and apart from its shareholders,
directors, and officers."2
¶81 Deciding whether the notice given is sufficient to be
notice to the corporation includes such issues as: to what
individual notice must be given to give notice to the
corporation; when, how, and where notice must be given; whether
notice was in strict compliance with the applicable
requirements; whether notice was in substantial compliance with
the applicable requirements;3 and whether actual notice (that is,
2
1 William Meade Fletcher et al., Cyclopedia of the Law of
Corporations § 25 (perm. ed., rev. vol. 2006) (citing, inter
alia, Security Bank v. Klicker, 142 Wis. 2d 289, 418 N.W.2d 27
(1987)).
3
The majority opinion is correct in stating that small
variances generally will not make notice ineffective. Majority
op., ¶36 (citing Beckenheimer's Inc. v. Alameda Assocs. Ltd.
P'ship, 611 A.2d 105, 112-13 (Md. 1992)). However, the case
cited by the majority opinion does not necessarily illustrate
the minuteness of variances allowed because the case also
involves ambiguous terms being construed against the plaintiff.
Beckenheimer's Inc., 611 A.2d at 111.
2
No. 2012AP122.ssa
knowledge) can overcome notice that does not comply with the
applicable requirements.
¶82 Numerous leases and amendments were negotiated in the
instant case. The tenant corporation kept changing, at least in
name. The leases and amendments do not always state the name of
the corporation that is the tenant; some merely state notice is
to be given to "the tenant." The leases and amendments in the
instant case do not always reveal the individual to whom notice
is to be given to constitute notice to a corporation tenant.
¶83 The majority opinion concludes that the landlord's
addressing the notice to Robert Kraft "ensured that an
appropriate individual within the [corporate] entity received
the notice." Majority op., ¶41.
¶84 The majority opinion's conclusion is based on two
faulty reasons:
(1) The majority opinion applies Wis. Stat. § 704.21(3) to
the instant case. This statute provides that notice
by a tenant to a corporation landlord may be conveyed
by notice to an officer of the corporation. The
statute, however, explicitly governs only a tenant's
More analogous examples include American Oil Co. v. Rasar,
308 S.W.2d 486, 491 (Tenn. 1957) (reasoning that notice was
invalid because it was sent to the original lessors when the
lease required notice to be sent to assignees of lessors);
Western Tire, Inc. v. Skrede, 307 N.W.2d 558, 562 (N.D. 1981)
(reasoning that notice was invalid because the notice was sent
by ordinary mail instead of certified or registered mail); and
Bernier v. Benson, 159 N.E.2d 39, 41 (Ill. Ct. App. 1959)
(reasoning that notice was invalid when notice was provided by a
partnership, but the lessees actually were the individuals that
made up the partnership).
3
No. 2012AP122.ssa
notice to a landlord of extension of a lease, and the
present case involves a landlord's notice to a tenant.
Majority op., ¶37-38.
(2) Without analysis of corporation and agency law
recognizing the separateness of a corporation and
individuals associated with the corporation, the
majority opinion treats an individual who is
guarantor, an individual who is an officer of the
corporation, and the corporation as if they are one
and the same.
¶85 Robert Kraft is an officer of New Electronic Printing
Systems. Robert Kraft was not the "tenant." New Electronic
Printing Systems was the tenant. The landlord knew that New
Electronic Printing Systems was the tenant. Robert Kraft,
individually, was a guarantor under the lease. A careful
landlord would have given Robert Kraft notice in his individual
capacity as a guarantor to protect the landlord's rights against
the guarantor.
¶86 I dissent because I am not persuaded by the majority
opinion's reasoning and believe that it may have troublesome,
unforeseen consequences.
I
¶87 To reach its result, the majority opinion misapplies
Wis. Stat. § 704.21 to the notice at issue in the present case——
a landlord's notice to the tenant of extension of the lease.
This statute explicitly regulates only a tenant's notice to a
landlord to extend a lease. See majority op., ¶37. The
4
No. 2012AP122.ssa
legislature singled out a tenant's extensions of leases and
enacted a statute to govern tenants, not landlords.
¶88 Contrary to the plain text of the statute, the
majority opinion expands the statute to govern the landlord's
notice to a tenant in the present case.
¶89 The majority opinion does not use the usual tools of
statutory interpretation to extend the statute beyond its text
in the present case; the majority opinion does not analyze the
text, context, purpose, or statutory or legislative history.4
¶90 Rather, the majority opinion reasons that the court
does not want to create "disparate standards" on landlord and
tenant, particularly for commercial tenants and commercial
landlords. Majority op., ¶38. "Why not?" I ask. No answer is
given in the majority opinion.
¶91 Thus, the majority opinion is not convincing as a
matter of statutory interpretation. The majority opinion relies
on a statute that by its very words does not apply to the
instant case and now leaves many questions unanswered regarding
the statute's applicability to other landlord-tenant agreements
and disputes.
¶92 The majority opinion is not convincing as a matter of
corporate law and agency law. The majority opinion conflates
the individual, Kraft, and the corporate entity, New Electronic
Printing Systems. The circumstances of the instant case do not
bear out this conflation of the person and the corporation.
4
See majority op., ¶37-38.
5
No. 2012AP122.ssa
¶93 Robert Kraft's admission that he could accept notice
on behalf of the corporation does not mean that, in the instant
case, notice to Kraft in his personal capacity constituted
notice to the corporation. Rather, the general rule is that
notice to an officer of a corporation is notice to a corporation
only when, amongst other requirements, the "notice . . . comes
to . . . the agent in his or her official or representative
capacity."5 Put differently, "[s]uch notice, to be binding upon
the principal, must be notice to the agent when acting within
the scope of his agency, and must relate to the business, or, as
most of the authorities have it, the very business, in which he
is engaged, or is represented as being engaged, by authority of
his principal." Congar v. Chicago & N.W. Ry. Co., 24 Wis. 157,
160 (1869).6
¶94 In the instant case, Robert Kraft was not named in the
notice in his representative capacity and nothing in the record
demonstrates that Kraft accepted service of notice in his
representative capacity on behalf of New Electronic Printing
5
3 William Meade Fletcher et al,, Cyclopedia of the Law of
Corporations § 793, at 34-35 (perm. ed., rev. vol. 2010). See
also Tele-Port, Inc. v. Ameritech Mobile Communic'ns, 2001 WI
App 261, ¶7, 248 Wis. 2d 846, 637 N.W.2d 782 ("[C]orporation is
charged with constructive knowledge, regardless of its actual
knowledge, of all material facts of which its officer or agent
receives notice or acquires knowledge while acting in the course
of his employment within the scope of his authority . . . .")
(emphasis added, internal quotation marks omitted).
6
See also 1 Restatement (Third) of Agency § 5.02(1) (2006)
("A notification given to an agent is effective as notice to the
principal if the agent has actual or apparent authority to
receive the notification . . . .") (emphasis added).
6
No. 2012AP122.ssa
Systems.7 The notice of lease extension document did not state
that notice was given to Robert Kraft in his representative
capacity on behalf of New Electronic Printing Systems. Indeed,
no reference was made to New Electronic Printing Systems
anywhere in the notice. Simply because Kraft was an officer of
New Electronic Printing Systems does not mean he was provided
notice in a representative capacity.
¶95 In the instant case, Robert Kraft, as an individual,
was a guarantor under the lease and would have received notice
in his individual capacity.
¶96 Notice came to Robert Kraft in his individual
capacity; he had an individual interest in the matter. Notice
did not come to Robert Kraft in his representative capacity or
regarding his actual or apparent authority to act as agent of
New Electronic Printing Systems.8 Whether notice to Robert Kraft
individually was notice to the corporation might well be a
question of fact requiring resolution at trial.9
II
¶97 If the reader is not persuaded that notice to Robert
Kraft in his individual capacity was notice to the corporation,
the majority opinion provides a fail-safe reason justifying the
sufficiency of the notice, assuring us that the corporation had
7
Kraft was identified in the landlord's notice of extension
as "Robert Kraft," rather than "New Electronic Printing Systems
c/o Robert Kraft" or similar language.
8
See 3 Fletcher, supra note 5, § 793, at 35.
9
See id.
7
No. 2012AP122.ssa
"actual notice" that the landlord was extending the lease.10 In
a single conclusory sentence, the majority opinion declares that
Robert Kraft "cannot reasonably contend that New Electronic
Printing Systems was unaware that [the landlord] was exercising
what [the landlord] asserted was its right to extend." Majority
op., ¶43. "Why not?" I ask.
¶98 The majority opinion speaks of "actual notice" and
"awareness," but the majority opinion obviously means
"knowledge." The majority opinion imputes Robert Kraft's
knowledge of the landlord's extension of the lease to the
corporation, without considering that "[t]here may be a
difference between the effect of notice expressly given an
officer or agent of a corporation, as binding the corporation,
and knowledge acquired by such an officer or agent."11 Again,
the majority opinion conflates the individual and the corporate
entity.
¶99 In any event, the general rule is that a corporation
is charged with constructive knowledge, regardless of its actual
knowledge, of all material facts of which its officer or agent
receives notice or acquires knowledge while acting within the
scope of his or her authority, but does not have constructive
knowledge of facts learned by its officer or agent outside the
scope of his or her agency:12
10
Majority op., ¶2.
11
Notice and knowledge need not have the same effect. 3
Fletcher, supra note 5, § 791.
12
See Congar v. Chicago & N.W. Ry. Co., 24 Wis. 157, 160
(1869); 3 Fletcher, supra note 5, § 790, at 16-17, 26.
8
No. 2012AP122.ssa
Knowledge acquired or notice received by an agent
which does not pertain to the duties of the agent,
which does not relate to the subject matter of the
employment, or which affects matters outside the scope
of his [or her] agency is not chargeable to the
principal unless actually communicated to [the
13
principal].
¶100 The majority opinion does not tackle this question of
imputing Robert Kraft's knowledge to the corporation in a
satisfactory manner.
¶101 Because the majority opinion fails to explain or
employ the applicable rules of landlord-tenant law, corporate
law, and agency law to the instant case, and fails to furnish a
persuasive rationale that governs the present case or will
govern other cases involving notice to a corporation and
knowledge of a corporation, I do not join this part of the
majority opinion.
13
Philipp Lithographing Co. v. Babich, 27 Wis. 2d 645, 650
n.4, 135 N.W.2d 343 (1965) (quoting 3 Am. Jur. 2d Agency § 276,
at 639).
9
No. 2012AP122.ssa
1